WASHINGTON, D.C. — On Wednesday, U.S. Sen. Sherrod Brown (D-OH) – a senior member of the Senate Banking Committee – chaired a hearing of the Banking Subcommittee on Financial Institutions and Consumer Protection. The hearing, entitled “Student Loan Servicing: The Borrower’s Experience,” examined the often troublesome relationship between student loan servicing companies and borrowers. The hearing also highlighted recent data released by the Consumer Financial Protection Bureau (CFPB) on consumer complaints in the student loan market and explored issues facing borrowers’ trying to repay their federal and private student loans.
Those testifying at the hearing include:
Brown’s remarks, as prepared for delivery, follow:
Senator Sherrod Brown
Opening Statement for the Senate Banking Committee, Subcommittee on Financial Institutions and Consumer Protection Hearing
“Student Loan Servicing: The Borrower’s Experience”
June 4, 2014
About a decade ago, we began to see the warning signs of problems in the housing market.
A few years later, we watched the combination of Wall Street greed and inattentive regulators destroy our economy.
We are still picking up the pieces.
This crisis and the topic of today’s hearing, student loan servicing, are very much interconnected.
Over the course of the last few years, we have seen that far too many homeowners become victims of improper foreclosures when their mortgage servicer could have assisted them to enroll in a loan modification program, but chose not to instead.
And yet, here we are again.
Outstanding student debt is $1.2 trillion. More than credit card debt. More than auto loans. Student debt is second only to mortgage debt.
Roughly seven million borrowers are in default on a student loan. When these borrowers lose, our economy loses.
In May 2013, the Consumer Financial Protection Bureau released a report describing the impact of heavy student debt burdens.
A growing group of business leaders and regulators have joined the CFPB to describe how student debt can interrupt the slowly recovering economy.
Excessive student debt can defer or destroy the dreams of prospective first-time homebuyers, small business formation and entrepreneurship, and limit the options of young graduates who might work as teachers or doctors in rural areas.
Defaults will have long term impacts on our economic recovery.
It is critical that we ensure that student loan servicers are doing their jobs properly to protect individual borrowers, but also our economy as a whole.
Last year, I wrote a letter to some of the largest banks and student loan companies asking about their efforts to modify loans for borrowers in trouble and measuring their success in enrolling borrowers in affordable income-based plans.
The numbers were dismal. No bank has enrolled more than five percent of borrowers who were in trouble.
I'm concerned that student loan servicers care more about maximizing their profits than giving proper customer service.
Among the questions to consider: Is the complex and opaque repayment process set up to make borrowers fail?
Are servicers ensuring that borrowers fully understand their full range of repayment options, including those most advantageous to borrowers experiencing financial hardship?
Many of the loan repayment options are better suited for contract lawyers than recent graduates.
If we don’t give graduates the tools to succeed, we cannot expect them to have a fair shot at building a successful livelihood.
How can borrowers understand the repayment options best suited to their specific financial needs when its written in legalese that only lawyers are trained to understand? That’s unrealistic at best and cynical at worst.
In the Dodd-Frank Act, I proposed a student loan ombudsman within the CFPB.
That office has issued reports describing pervasive and troubling practices – servicers allocating borrowers' payments in order to maximize late fees, servicemembers facing challenges activating their military benefits on their student loans, and all borrowers facing obstacles enrolling in loan modification programs.
Based on referrals from this office, the Department of Justice and the FDIC found that the nation’s largest servicer had broken a series of laws, including the Servicemembers Civil Relief Act. It has been ordered to pay fines and compensation of more than $90 million for a host of servicing errors.
In February, another major player in the private student loan market revealed that it too was under investigation by the CFPB for its student loan servicing practices.
CFPB reports have recommended that Congress examine some of the reforms to the credit card and mortgage servicing markets, such as ones related to payment processing and servicing transfers, in order to improve the student loan servicing market.
To help address some of these problems which harm borrowers and our economy, I've sponsored a number of reforms such as the Student Loan Borrower Bill of Rights, which would provide protections and require workable, alternative repayment options for private loan borrowers who are at risk of default.
It would require lenders to notify borrowers about income-based repayment plans for federal loans and would protect borrowers from penalties due to errors on the part of the servicer.
We also know that private student loans generally have significantly higher interest rates, offer limited payment options, and offer no relief for the many graduates who are underpaid, have been laid off or are unable to find work.
My Refinancing Education Funding to Invest for the Future Act addresses this problem by authorizing the Treasury Department to make the private student loan market more efficient.
This bill would allow borrowers to refinance their costly private loans into more affordable loans, at no cost to taxpayers.
I look forward to our witnesses’ views on student loan servicing practices and the opportunities to ensure accountability and quality customer service.
We must do all that we can to ensure that we have given our graduates the tools to be successful in repayment.
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